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HomeMy WebLinkAboutBond Bank Financial Statement Audit 2017 FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT December 31, 2017 and 2016 THE CITY OF CARMEL LOCAL PUBLIC IMPROVEMENT BOND BANK CONTENTS Page INDEPENDENT AUDITORS' REPORT 1-2 MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) 3-7 FINANCIAL STATEMENTS Statements of Net Position 8 Statements of Revenues, Expenses and Changes in Net Position 9 Statements of Cash Flows 10 Notes to Financial Statements 11-18 OTHER INFORMATION Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 19-20 Independent Auditors' Report Board of Directors The City of Carmel Local Public Improvement Bond Bank Report on the Financial Statements We have audited the accompanying financial statements of The City of Carmel Local Public Improvement Bond Bank (Bond Bank), which comprise the statements of net position as of December 31, 2017 and 2016, and the related statements of revenues, expenses and changes in net position and cash flows for the years then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Uniform ComplianceGuidelines for Audit of State and Local Governments by Authorized Public Accountants, issued by the Indiana State Board of Accounts. Those standards and guidelines require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 1 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the net position of The City of Carmel Local Public Improvement Bond Bank as of December 31, 2017 and 2016, and the changes in its net position and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Report on Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis on pages 3 through 7 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 24, 2018, on our consideration of The City of Carmel Local Public Improvement Bond Bank’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering The City of Carmel Local Public Improvement Bond Bank’s internal control over financial reporting and compliance. Indianapolis, Indiana April 24, 2018 2 MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) THE CITY OF CARMEL LOCAL PUBLIC IMPROVEMENT BOND BANK MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) DECEMBER 31, 2017 and 2016 As management of The City of Carmel Local Public Improvement Bond Bank (the Bond Bank), we offer readers of the Bond Bank’s financial statements this narrative overview and analysis of the financial activities of the Bond Bank for the years ended December 31, 2017 and 2016. All amounts, unless otherwise indicated, are expressed in thousands of dollars and are approximate. Indiana Code § 5-1.4 establishes an individual bond bank for each city of second class stature within the State of Indiana. The Common Council of the City of Carmel, Indiana (the "City") adopted an ordinance declaring the City as a city of second class stature pursuant to Indiana Code §36-4-1-1.1 on January 4, 2016. The Bond Bank is a body corporate and politic and an instrumentality of the City, but separate from the City in its corporate capacity and not an agency of the City, established with the purpose of buying and selling securities of qualified entities. To accomplish its purpose, the Bond Bank may issue bonds or notes. The Bond Bank also has general powers which include the power to enter into, make and perform contracts of every lawful kind to accomplish its purpose. The State pledges to and agrees with the holders of any bonds or notes issued by the Bond Bank that the State will not limit or alter the rights vested in the Bond Bank to fulfill the terms of any agreement made with the holders of its bonds or notes, or in any way impair the rights or remedies of the holders of such obligations until the bonds or notes are fully repaid. The Bond Bank has no taxing power. Qualified entities are defined in Indiana Code § 5-1.4 to include, but are not limited to, a city, a county, a special taxing district located wholly within a county or any authority created under Indiana Code § 36 that leases land or facilities to any of the foregoing qualified entities. The qualified entities are each a qualified entity as defined in Indiana Code § 5-1.4. The Bond Bank is authorized to purchase securities offered by a qualified entity, with any such securities required, upon their delivery to the Bond Bank, to be accompanied by all documentation required by the Board of Directors and by Indiana Code § 5-1.4-8-2(b). Every qualified entity is authorized and empowered to contract with the Bond Bank with respect to the purchase of its securities, and the contracts will contain the terms and conditions of the purchase and may be in any form agreed to by the Bond Bank and the qualified entity. The Bond Bank is governed by a five-member Board of Directors, each appointed by the Mayor of the City. The Mayor appoints an Executive Director and the Board of Directors elect a Chair and Vice-Chair. Each of the five Directors serves for a term of three years, until a successor is appointed and qualified, and is eligible for reappointment. FINANCIAL HIGHLIGHTS During 2017, the Bond Bank issued $81.3 million in new bonds, including bond premiums of $3.3 million. The Bond Bank paid $3.5 million in principal payments on outstanding debt in 2017. 3 OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis are intended to serve as an introduction to the Bond Bank’s basic financial statements. The Bond Bank is an instrumentality of the City and is maintained as a Proprietary Fund. Proprietary Funds are used to report any activities for which income fees are charged to external users for goods and services. In addition, Proprietary Funds must be used in situations where debt is backed solely by fees and charges. A Proprietary Fund is accounted for in a manner similar to a commercial enterprise on the accrual basis of accounting. The Bond Bank’s financial statements include a statement of net position, statement of revenues, expenses and changes in net position, statement of cash flows, and the notes to the financial statements. Thestatement of net position presents information on all of the Bond Bank’s assets and liabilities with the difference reported as net position. Thestatement of revenues, expenses and changes in net position presents information showing how the Bond Bank’s net position changed during the year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. In contrast, the statement of cash flows is concerned solely with flows of cash and cash equivalents. Transactions are recorded when cash is received or exchanged, without concern of when the underlying event causing the transactions occurred. These financial statements can be found on pages 8 to 10 of this report. Thenotes to the financial statements provide additional information that is essential to a full understanding of the data provided in the financial statements. The notes to the financial statements can be found on pages 11 through 18 of this report. FINANCIAL ANALYSIS Net position may serve over time as a useful indicator of an entity’s financial position. In the case of the Bond Bank, assets exceeded liabilities by $329 thousand and $121 thousand for the years ended December 31, 2017 and 2016, respectively. The City of Carmel Local Public Improvement Bond Bank’s Condensed Statements of Net Position (In Thousands of Dollars) December 31, December 31, 2017 2016 Current assets $ 14,746 $ 22,533 Noncurrent assets 420,948 345,876 Total Assets 435,694 368,409 Current liabilities 14,310 22,269 Long-term liabilities 421,055 346,019 Total Liabilities 435,365 368,288 Net Position $ 329 $ 121 4 FINANCIAL ANALYSIS (CONTINUED) For the year ended December 31, 2017, the Bond Bank incurred the following changes: The net change in capitalized interest funds is a decline of approximately $7.6 million. Current assets and current liabilities decreased accordingly. Loans receivable and bonds payable increased $76 million as a result of $81.3 million in new bond issuances net of $3.5 million in debt payments. During 2017 the Bond Bank had two bond issuances supporting funding to the following qualified entities: Issuance #1 ($7,405,000) – The proceeds from the sale of the bonds were used for the following: $7,405,000 of City of Carmel Redevelopment Authority Taxable Lease Rental Bonds, Series 2017A (Midtown South Project) (the “Qualified Obligation”) Issuance #2 ($73,910,000) – The proceeds from the sale of the bonds were used for the following: $32,495,000 of City of Carmel Redevelopment Authority Lease Rental Bonds, Series 2017B-1 (LIT Supported/SBT Back-Up) (“Qualified Obligation 1”) $24,000,000 of City of Carmel Redevelopment Authority Lease Rental Bonds, Series 2017B-2 (LIT Supported/SBT Back-Up) (“Qualified Obligation 2”) $815,000 of City of Carmel Redevelopment Authority Taxable Lease Rental Bonds, Series 2017C-1 (LIT Supported/SBT Back-Up) (“Qualified Obligation 3”) $16,600,000 of City of Carmel Redevelopment Authority Taxable Lease Rental Bonds, Series 2017C-2 (TIF Supported/SBT Back-Up) (“Qualified Obligation 4”) The City of Carmel Local Public Improvement Bond Bank’s Statements of Revenue, Expenses and Changes in Net Position (In Thousands of Dollars) Year Ended Year Ended December 31, 2017 December 31, 2016 Operating Revenues: Interest $18,627 $9,806 Fees 49 89 Total Operating Revenues 18,676 9,895 Operating Expenses: Interest 18,429 9,773 Administrative costs 39 1 Total Operating Expenses 18,468 9,774 Increase in Net Position 208 121 Net Position – Beginning of Year 121 Net Position – End of Year $ 329 $ 121 5 FINANCIAL ANALYSIS (CONTINUED) The Bond Bank had an increase in net position of approximately $208 thousand during the year ending December 31, 2017. Key elements of this increase are as follows: Interest income was greater than interest expense by approximately $198 thousand. An administration fee of $49 thousand was also charged in 2017 for operating expenses which exceeded administrative costs. The Bond Bank had an increase in net position of approximately $121 thousand during the year ending December 31, 2016. Key elements of this increase are as follows: Interest income was greater than interest expense by approximately $33 thousand. An administration fee of $89 thousand was also charged in 2016 for operating expenses. DEBT ADMINISTRATION Long-term Debt: At the end of the years ending December 31, 2017 and 2016, the Bond Bank had bonds payable net of premium/discount of approximately $426 million and $350 million, respectively. The bonds payable are secured by specified revenue sources. The City of Carmel Local Public Improvement Bond Bank’s Outstanding Debt (In Thousands of Dollars) December 31, December 31, 2017 2016 Bonds payable $425,980 $349,525 During 2017, the Bond Bank issued $81.3 million in new bonds, including bond premiums of $3.3 million. During 2016, the Bond Bank issued $297.9 million in new bonds, including bond premiums of $54.1 million. Following is a summary of the bonds payable activity for 2017 and 2016 (In Thousands of Dollars). Balance at Balance at January 1, 2017 Increases Decreases December 31, 2017 Bonds payable $297,910 $81,315 $3,505 $375,720 Net premium on bonds 51,615 3,335 4,690 50,260 Total $349,525 $84,650 $8,195 $425,980 Balance at Balance at January 1, 2016 Increases Decreases December 31, 2016 Bonds payable $ - $297,910 $ - $297,910 Net premium on bonds - 54,065 2,450 51,615 Total $ - $351,975 $2,450 $349,525 6 DEBT ADMINISTRATION (CONTINUED) Following is a summary of the new bonds issued for the year ended December 31, 2017. Issuance #1 ($7,405,000) was used by the Bond Bank to purchase the Qualified Obligation and pay the costs of issuance of the Bonds, together with certain related expenses. A portion of the purchase price of the Qualified Obligation will be retained by the Bond Bank and applied to the payment of capitalized interest on the bonds and costs of issuance and related expenses of the Qualified Obligation. Issuance #2 ($73,910,000) was used by the Bond Bank to purchase the Qualified Obligations and pay the costs of issuance of the Bonds, together with certain related expenses. A portion of the purchase price of the Qualified Obligations will be retained by the Bond Bank and applied to the payment of capitalized interest on the Bonds and costs of issuance and related expenses of the Qualified Obligations. The City of Carmel Redevelopment Authority delivered its Qualified Obligations to the Bond Bank simultaneous with the Bond Bank’s delivery of the Bonds and the 2017B-2 Bonds to the respective purchasers thereof. More detailed information about the Bond Bank’s debt is presented in Note 5 to the financial statements. REQUESTS OF INFORMATION This financial report is designed to provide a general overview of the Bond Bank’s finances. Questions concerning any of this information should be addressed to The City of Carmel Local Public Improvement Bond Bank, One Civic Square, Carmel, IN 46032. 7 FINANCIAL STATEMENTS THE CITY OF CARMEL LOCAL PUBLIC IMPROVEMENT BOND BANK STATEMENTS OF NET POSITION December 31, 2017 and 2016 20172016 ASSETS Current Assets: Cash $ 107,522 $ 89,096 Interest receivable 4,108,3887,355,207 Investments held by trustees, at fair value 5,935,69411,433,540 Loans receivable, current 4,594,4403,655,000 Total Current Assets 14,746,044 22,532,843 Noncurrent Assets: Loans receivable, net 420,947,490345,876,326 Total Noncurrent Assets 420,947,490 345,876,326 Total Assets 435,693,534368,409,169 LIABILITIES Current Liabilities: Interest payable 5,473,6637,330,593 Funds held for qualified entities 3,911,08811,433,129 Bonds payable - current 4,925,0003,505,000 Total Current Liabilities 14,309,751 22,268,722 Noncurrent Liabilities: Bonds payable, net 421,054,735346,019,547 Total Noncurrent Liabilities 421,054,735 346,019,547 Total Liabilities 435,364,486 368,288,269 NET POSITION $ 329,048 $ 120,900 See accompanying notes. 8 THE CITY OF CARMEL LOCAL PUBLIC IMPROVEMENT BOND BANK STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Years Ended December 31, 2017 and 2016 20172016 OPERATING REVENUES Interest $ 18,627,390 $ 9,805,934 Administrative fees 48,87989,331 Total Operating Revenues 18,676,2699,895,265 OPERATING EXPENSES Interest 18,428,9769,773,891 Administrative costs 39,145474 Total Operating Expenses 18,468,121 9,774,365 INCREASE IN NET POSITION 208,148 120,900 NET POSITION Beginning of Year 120,900 - End of Year $ 329,048 $ 120,900 See accompanying notes. 9 THE CITY OF CARMEL LOCAL PUBLIC IMPROVEMENT BOND BANK STATEMENTS OF CASH FLOWS Years Ended December 31, 2017 and 2016 20172016 OPERATING ACTIVITIES Fees received $ 48,879 $ 89,331 Cash payments for administrative and other expenses (39,145) (474) Net Cash Provided by Operating Activities 9,734 88,857 INVESTING ACTIVITIES Maturities of loans to qualified entities 4,000,560 - Issuance of loans to qualified entities (80,011,164) (351,974,624) (Increase) decrease in investments 9,461,000 (11,377,000) Interest received on loans and investments 21,874,209 650 Net Cash Used by Investing Activities (44,675,395) (363,350,974) NON-CAPITAL FINANCING ACTIVITIES Proceeds from debt issuance 79,960,188 351,974,624 Principal payments to reduce indebtedness (3,505,000) - Increase (decrease) in funds held for qualified entities (7,522,041) 11,433,129 Interest paid on bonds (20,285,906) - Net Cash Provided by Non-Capital Financing Activities 48,647,241 363,407,753 NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS 3,981,580 145,636 CASH AND SHORT-TERM INVESTMENTS Beginning of Year 145,636 - End of Year $ 4,127,216 $ 145,636 CASH AND SHORT-TERM INVESTMENTS Cash $ 107,522 $ 89,096 Short-term investments 4,019,694 56,540 $ 4,127,216 $ 145,636 RECONCILIATION OF INCREASE IN NET POSITION TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Increase in net position $ 208,148 $ 120,900 Adjustments to reconcile increase in net position to net cash provided by operating activities: Interest income (18,627,390) (9,805,934) Interest expense 18,428,976 9,773,891 Net Cash Provided by Operating Activities $ 9,734 $ 88,857 See accompanying notes. 10 THE CITY OF CARMEL LOCAL PUBLIC IMPROVEMENT BOND BANK NOTES TO FINANCIAL STATEMENTS December 31, 2017 and 2016 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations:The City of Carmel Local Public Improvement Bond Bank (the Bond Bank) was created on January 4, 2016 under applicable State of Indiana statutes. The Bond Bank is an instrumentality of the City of Carmel (the City) but is not a City agency and has no taxing power. It has separate corporate and sovereign capacity and its board is composed of five directors appointed by the Mayor of the City. The Bond Bank is authorized to buy and sell securities for the purpose of providing funds to the following: City of Carmel, Indiana Carmel Redevelopment Authority Carmel Redevelopment District Carmel Storm Water District The Bond Bank enables the qualified entities to issue debt, in some circumstances, at a lower cost of borrowing and on more favorable terms than would be possible by financing on their own. To accomplish its purpose, the Bond Bank may issue its own bonds. It also has general powers to enter into, make, and perform contracts of every lawful kind to accomplish its purpose. Bonds and notes are issued by the Bond Bank to provide funds to loan to the qualified entities and are limited obligations of the Bond Bank. They are secured and payable solely from principal and interest payments received by the Bond Bank on loans to qualified entities (evidenced by bonds and notes issued by the qualified entities) that were made from proceeds of the issuance of particular bonds or notes, and in certain issues, from designated funds and earnings held in trust. Owners of the Bond Bank bonds and notes have a claim solely against the payments received on the respective loans to qualified entities made by the Bond Bank with proceeds from the issuance of particular bonds or notes (and other funds held in trust when applicable) and have no claims or rights against any other assets held by the Bond Bank. Indiana statutes permit the Bond Bank to invest in securities authorized by its respective fiduciary documents. These investments include obligations of the U.S. Treasury and U.S. agencies, commercial paper, certificates of deposit, repurchase agreements, passbook savings, money market deposit accounts, guaranteed investment contracts and negotiable order of withdrawal accounts. Repurchase agreements are required to be fully collateralized by interest-bearing obligations as determined by the current market value computed on the day the agreement is effective. The Bond Bank was established to develop infrastructure, and assist in the economic development of the City of Carmel. Accordingly, financial support is provided to certain city initiatives and properties. Such support indirectly maintains the credit rating of the Bond Bank, and helps it achieve its statutory purpose. Board approved financial support expenditures represent support of historical city properties and economic development initiatives. Basis of Presentation: The Bond Bank is accounted for as a Proprietary Fund. The financial statements of the Bond Bank have been prepared on the accrual basis of accounting and using the economic resources measurement focus. Accordingly, the Bond Bank recognizes revenue in the period earned and expenses in the period incurred. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing accounting and financial reporting principles. The financial statements reflect the activity of the Bond Bank from its inception on January 4, 2016 through December 31, 2017. Estimates: Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used. Cash and Equivalents include deposits in financial institutions and short-term investments with original maturities of three months or less. Short-term investments held in trust accounts are included as investments. 11 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Investments:All investments are reflected at fair value in accordance with GASB pronouncements, which is the price that would be received to sell an asset or transfer a liability in an orderly transaction. Changes in the fair value of investments are included in the statement of revenues, expenses and changes in net position. See Note 3. Loans Receivable: Loans to qualified entities are recorded at cost and adjusted for amortization of discounts/premiums on a basis approximating a constant return rate over the remaining life of the loan. Because there are a small number of significant loans outstanding, management estimates the allowance for loan loss by identifying specific troubled loans. The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. Management does not believe an allowance is necessary as of December 31, 2017 and 2016. Original Issue Premiums and Discounts:Original issue premiums and discounts on bonds are amortized using a method that approximates the effective interest method over the life of the bonds to which they relate. Bond Issuance Costs: Bond issuance costs are passed through to the qualified entities. Income Taxes: The Bond Bank is exempt from federal and state income taxes. Reclassifications: Certain amounts in the 2016 financial statements have been reclassified to conform with the presentation of the 2017 financial statements. Subsequent Events: The Bond Bank has evaluated the financial statements for subsequent events occurring through April 24, 2018, the date the financial statements were available to be issued. NOTE 2 - DEPOSITS AND INVESTMENTS Proceeds of certain bond issues are invested with various banks in their capacity as trustees under trust agreements executed concurrently with the indentures and are pledged to the repayment of certain bonds payable. The Bond Bank Act permits funds to be invested as provided in trust indentures executed by the Bond Bank and based on resolutions of its Board of Directors. The Bond Bank’s deposits and investments at December 31, 2017, are summarized as follows: Cost Fair Value Cash $ 107,522 $ 107,522 Investments: Money market funds 4,019,694 4,019,694 Certificates of deposit 1,916,000 1,916,000 Total Deposits and Investments $6,043,216 $6,043,216 The Bond Bank’s deposits and investments at December 31, 2016, are summarized as follows: Cost Fair Value Cash $ 89,096 $ 89,096 Investments: Money market funds 56,540 56,540 Certificates of deposit 11,377,000 11,377,000 Total Deposits and Investments $11,522,636 $11,522,636 12 NOTE 2 - DEPOSITS AND INVESTMENTS (CONTINUED) Deposits with Financial Institutions Custodial risk is the risk that in the event of bank failure, the Bond Bank’s deposits may not be returned to it. Cash deposits up to $250,000 per financial institution are insured by Federal Deposit Insurance Corporation (FDIC). Balances that exceed $250,000 are covered by the Public Deposit Insurance Fund. Investments Investments are restricted for repayment of bonds payable issued under the respective programs (see Note 5). Investments are also restricted to authorized investments per the applicable trust indentures. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. As of December 31, 2017, the Bond Bank had the following investments and maturities: Investment Maturities (in Years) More Than Investment Type Fair Value Less Than 1 1-5 6-10 10 Money market funds $4,019,694 $4,019,694 Certificates of deposit 1,916,000 958,000 $958,000 $5,935,694 $4,977,694 $958,000 Custodial Credit Risk of Investments Custodial credit risk is the risk that the Bond Bank will not be able to recover the value of its deposits, investments or collateral securities that are in the possession of an outside party if the counterparty fails. Investment securities are exposed to risk if the securities are uninsured, are not registered in the name of the Bond Bank, and are held by either the counterparty or the counterparty’s trust department or agent but not in the Bond Bank’s name. The Bond Bank has no custodial risk on investments. Credit Risk Disclosure The following table provides information on the credit ratings associated with the Bond Bank’s investments at December 31, 2017: Credit Ratings S&P Fitch Moody’s Fair Value Money market funds AAAm AAAmf Aaa-mf $4,019,694 13 NOTE 2 - DEPOSITS AND INVESTMENTS (CONTINUED) Concentration of Credit Risk There are no limits on the amount that may be invested in any one issuer. The following shows an investment in an issuer that represents 5% or more of the total investments at December 31, 2017: Huntington Conservative Deposit Account 68% Lake City Bank Public Funds CD 24% First Financial Bank Public Funds CD 8% NOTE 3 - FAIR VALUE MEASUREMENTS The Bond Bank has categorized its assets and liabilities that are measured at fair value into a three-level fair value hierarchy. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of the fair value hierarchy are described as follows: Level 1 – Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Bond Bank has the ability to access. Level 2 – Inputs to the valuation methodology may include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and/or inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement. In situations where there is little or no market activity for the asset or liability, the Bond Bank makes estimates and assumptions related to the pricing of the asset or liability including assumptions regarding risk. Also included in Level 3 are assets measured using a practical expedient that can never be redeemed at the practical expedient. Following is a description of the valuation methodologies used by the Bond Bank for assets that are measured at fair value on a recurring basis. There have been no changes in the methodologies used at December 31, 2017 and 2016. Money Market Fund Shares: Valued at the daily closing price as reported by the funds. These funds are required to publish their daily net asset value (NAV) and to transact at that price. These funds are deemed to be actively traded. Certificates of Deposit:Determined by discounting the related cash flows on current yields of similar investments with comparable durations considering the credit-worthiness of the issuer. For those assets and liabilities measured at fair value, management determines the fair value measurement policies and procedures in consultation with the Bond Bank’s Board of Directors. Those policies and procedures are reassessed at least annually to determine if the current valuation techniques are still appropriate. At that time, the unobservable inputs used in the fair value measurements are evaluated and adjusted, as necessary, based on current market conditions and other third-party information. 14 NOTE 3 - FAIR VALUE MEASUREMENTS (CONTINUED) The preceding methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Bond Bank’s management believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain assets could result in a different fair value measurement at the reporting date. Following is a summary, within each level of the fair value hierarchy, of the Bond Bank’s assets that are measured at fair value on a recurring basis as of December 31, 2017 and 2016: 2017 Level 1 Level 2 Total Assets Investments: Money market fund shares $4,019,694 $ 4,019,694 Certificates of deposit $1,916,000 1,916,000 Total Assets at Fair Value $4,019,694 $1,916,000 $ 5,935,694 2016 Assets Investments: Money market fund shares $ 56,540 $ 56,540 Certificates of deposit $11,377,000 11,377,000 Total Assets at Fair Value $ 56,540 $11,377,000 $11,433,540 At December 31, 2017 and 2016, the Bond Bank had no other assets and no liabilities that are measured at fair value on a recurring basis. NOTE 4 - LOANS RECEIVABLE All purchases of qualified obligations are authorized by the Board of Directors of the Bond Bank. Prior to being presented to the Board of Directors, an evaluation of each purchase is made by the Bond Bank’s management and independent consultants. Repayment of these obligations by the qualified entities is funded by many sources, including property tax revenues and user fees. The Bond Bank's loans receivable from qualified entities at December 31, 2017 and 2016, are as follows: 2017 2016 Carmel Redevelopment District, Carmel Redevelopment Authority, and Carmel Storm Water District, Multipurpose Bonds, Series 2016, maturing January 15, 2017 to 2036, with interest ranging from 2% to 5%. $211,504,440 $214,455,000 Carmel Redevelopment District and Carmel Redevelopment Authority, Taxable Special Program Bonds, 2016 (City Center II and Midtown Phase 1A), maturing January 15, 2020 to 2041, with interest ranging from 1.576% to 3.762%. 29,720,000 29,720,000 15 NOTE 4 - LOANS RECEIVABLE (CONTINUED) 2017 2016 City of Carmel, Program Bonds, Series 2016 (Waterworks Revenue Bonds), maturing May 1, 2017 to 2028, with interest ranging from 4.125% to 5%. $ 53,115,000 $ 54,165,000 Carmel Redevelopment Authority Taxable Special Program Bonds, Series 2017 (Midtown South Project) maturing July 15, 2020 to 2042, with interest ranging from 1.973% to 3.864%. 7,405,000 Carmel Redevelopment Authority Special and Taxable Special Program Bonds, Series 2017 (LIT and TIF Supported) maturing July 15, 2018 to 2037, with interest ranging from 2.006% to 5.000%. 73,910,000 375,654,440 298,340,000 Plus: Unamortized premium 49,887,490 51,191,326 425,541,930 349,531,326 Less: Current portion of loans receivable (4,594,440) (3,655,000) Long-term Portion of Loans Receivable, net $420,947,490 $345,876,326 Loans receivable from qualified entities, registered to the Bond Bank, are either serial, term, or serial and term maturities. NOTE 5 - BONDS AND NOTES PAYABLE The Bond Bank's bonds payable at December 31, 2017 and 2016, are summarized as follows: 2017 2016 Multipurpose Bonds, Series 2016, maturing January 15, 2017 to 2036, with interest ranging from 2% to 5%. $211,850,000 $214,455,000 Taxable Special Program Bonds, Series 2016, maturing January 15, 2020 to 2041, with interest ranging from 1.576% to 3.762%. 29,720,000 29,720,000 Special Program Bonds, Series 2016, maturing June 1, 2017 to 2028, with interest ranging from 3% to 5%. 52,835,000 53,735,000 Taxable Special Program Bonds, Series 2017, maturing July 15, 2020 to 2042, with interest ranging from 1.973% to 3.864%. 7,405,000 Special and Taxable Special Program Bonds, Series 2017, maturing July 15, 2020 to 2042, with interest ranging from 1.973% to 3.864%. 73,910,000 375,720,000 297,910,000 Plus: Unamortized premium 50,259,735 51,614,547 425,979,735 349,524,547 Less: Current portion of bonds payable (4,925,000) (3,505,000) Long-term Portion of Bonds Payable, net $421,054,735 $346,019,547 All of the bond issues listed above are either serial or serial and term maturities. The faith, credit and taxing power of the City of Carmel or any political subdivision thereof are not pledged to the payment of principal and interest on these obligations. 16 NOTE 5 - BONDS AND NOTES PAYABLE (CONTINUED) Scheduled principal payments due on bonds payable outstanding at December 31, 2017, are summarized as follows: Payable In Principal Interest Debt Service 2018 $ 4,925,000 $ 15,299,211 $ 20,224,211 2019 7,910,000 16,187,577 24,097,577 2020 10,455,000 15,800,357 26,255,357 2021 11,595,000 15,366,148 26,961,148 2022 12,570,000 14,965,549 27,535,549 2023-2027 89,815,000 64,677,479 154,492,479 2028-2032 118,100,000 41,005,700 159,105,700 2033-2037 111,805,000 13,004,675 124,809,675 2038-2042 8,545,000 701,551 9,246,551 375,720,000 197,008,247 572,728,247 Plus: Unamortized premium on bonds 50,259,735 50,259,735 $425,979,735 $197,008,247 $622,987,982 Changes in long-term liabilities were as follows: Balance at Balance at January 1, 2017 Increases Decreases December 31, 2017 Bonds payable $297,910,000 $ 81,315,000 $3,505,000 $375,720,000 Net premium on bonds 51,614,547 3,334,569 4,689,381 50,259,735 Total $349,524,547 $ 84,649,569 $8,194,381 $425,979,735 Balance at Balance at January 1, 2016 Increases Decreases December 31, 2016 Bonds payable $ - $297,910,000 $ - $297,910,000 Net premium on bonds - 54,064,624 2,450,077 51,614,547 Total $ - $351,974,624 $2,450,077 $349,524,547 Bond Series 2017 – Issuance #1 ($7,405,000) was used by the Bond Bank to purchase the Qualified Obligation and pay the costs of issuance of the Bonds, together with certain related expenses. A portion of the purchase price of the Qualified Obligation will be retained by the Bond Bank and applied to the payment of capitalized interest on the bonds and costs of issuance and related expenses of the Qualified Obligation. Bond Series 2017 – Issuance #2 ($49,910,000) was used by the Bond Bank to purchase the Qualified Obligations and pay the costs of issuance of the Bonds, together with certain related expenses. A portion of the purchase price of the Qualified Obligations will be retained by the Bond Bank and applied to the payment of capitalized interest on the Bonds and costs of issuance and related expenses of the Qualified Obligations. The City of Carmel Redevelopment Authority delivered its Qualified Obligations to the Bond Bank simultaneous with the Bond Bank’s delivery of the Bonds and the 2017B-2 Bonds to the respective purchasers thereof. 17 NOTE 5 - BONDS AND NOTES PAYABLE (CONTINUED) Bond Series 2016 – Issuance #1 ($214,455,000) was used to acquire qualified obligations of the City of Carmel in the amount of $18,362,000, acquire qualified obligations of City of Carmel Redevelopment Authority in the amount of $165,373,000, and acquire qualified obligations of the City of Carmel Storm Water District in the amount of $30,720,000. A portion of the purchase price of the Qualified Obligations was applied to payment of capitalized interest on the bonds, together with the cost of issuance of the Qualified Obligations and certain related expenses. Bond Series 2016 – Issuance #2 ($29,720,000) was used to acquire qualified obligations of the City of Carmel Redevelopment District in the amount of $18,830,000 for City Center II Projects and acquire qualified obligations of the City of Carmel Redevelopment Authority in the amount of $10,890,000 for Midtown Phase 1A Projects. A portion of the purchase price of the Qualified Obligations was applied to payment of capitalized interest on the bonds, together with the cost of issuance of the Qualified Obligations and certain related expenses. Bond Series 2016 – Issuance #3 ($53,735,000) was used to purchase the City of Carmel, Indiana, Junior Waterworks Revenue Bonds of 2008, fund the Bond Bank Reserve Requirement of the Bond Bank Reserve Account, and pay the costs of issuance of the Series 2016 Bonds, together with the related expenses. NOTE 6 - CONCENTRATION OF CREDIT RISK The Bond Bank has loans to qualified entities, all of whom are located in Carmel, Indiana. 18 OTHER INFORMATION Independent Auditors' Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Board of Directors The City of Carmel Local Public Improvement Bond Bank We have audited, in accordance with the auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the Uniform ComplianceGuidelines for Audit of State and Local Governments by Authorized Public Accountants, issued by the Indiana State Board of Accounts. the financial statements of The City of Carmel Local Public Improvement Bond Bank (the Bond Bank), which comprise the statement of net position as of December 31, 2017, and the related statements of revenues, expenses and changes in net position and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated April 24, 2018. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Bond Bank’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Bond Bank’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Bond Bank’s internal control. Adeficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 19 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Bond Bank’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solelyto describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Indianapolis, Indiana April 24, 2018 20